What happened?

The stock of Goldman Sachs fell after the bank reported a bigger drop in equity trading than expected.

Why is it important?

In general

Goldman’s report contained a lot of information and not all of it was bad. Earnings came at $5.71 a share versus the forecast of $4.89. Nevertheless, despite its diversification efforts, Goldman Sach remains extremely exposed to Wall Street activity. Moreover, revenue fell by 13% to $8.81 billion. If not for the fees from advising on mergers and acquisitions, the figure would be even worse.

For investors

Goldman’s investment banking revenue declined by 11% to $1.84 billion, and stock-trading revenue fell 24% to $1.77 billion. These double-digit numbers shocked traders. In addition, investors were disappointed by the fact that the management planned to offer bank-wide performance targets at the start of 2020 and not this spring.

Goldman explains that much of the Q1 weakness was due to the low underwriting revenue. The situation will improve as there will be many high-profile IPOs throughout the rest of the year. In addition, the bank is trying to reorient itself to consumer business. For example, it will launch a new credit card with Apple later this year. Finally, Goldman is cutting costs. The bank has lowered compensation for its employees by 20% compared with the level of a year ago and cut its staff by 2% from the previous quarter.

All in all, if we look ahead, much will depend on the general health of the banking sector that, in turn, depends on the US economic outlook and the policy of the Federal Reserve. However, if we look at GS, it has chances of improving its business results due to the management and strategic changes.

For traders

The stock made a sharp turn down from the 200-day MA in the $209 area. If the price settles below the $200 level, it will be vulnerable for a decline to $190 (100-day MA). In the medium and longer term, the stock will retain its chances to recover as long as it’s trading above the March low at $187.00. The bigger upside will be possible only above $212. The target will be at $225.   

The weekly chart of Goldman Sachs Group Inc.
Goldman Sachs Group Inc., weekly chart

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